BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON, D. C. 20266-0001
RECEIVEI,
hJ 17 J 11p)j“97
POSTAL RATIE AND FEE CHANGES,
1997
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INTERROGATORIESOFADVO,
INC.
TO UNITED STATES POSTAL SERVICE WITNES!;
JOHN C. PANZAR fADVOIUSPS-Tl l-9-14)
Pursuant to sections 25 and 26 of the Rules of Practice, Advo, inc. (Advo) directs
the following interrogatories
to United States Postal Service witness ,John C. Panzar.
the witness is unable to respond to any interrogatory,
provided by appropriate
we request that a response be
USPS witness capable of providing an answer.
Respectfully
u
CERTIFICATE
submitted,
Thomas W. McLaughlin
Burzio 8 McLaughlin
1054 31st Street, N.W.
Washington, D. C 200117
Counsel for ADVO, INC.
OF SERVICE
I hereby certify that I have on this date served the foregoing document upon all
participants of record in this proceeding in accordance with secti
Practice.
September
17, 1997
If
INTERROGATORIES
OFADVO INC. TO USPS WITNESS PANZAR
ADVOIUSPS-Tll-9.
component
To the extent that the non-volume-variability
is due to the peaking characteristics
of a cost
of a particular mail class (e.g.,
requiring reserve labor capacity or causing imperfect matches between capacity and
volume), could some or all of the non-volume-variable
to that class?
costs be considered
Please explain your answer, and describe any additional
incremental
information
or
factors that would affect your answer.
ADVO/USPS-Tl
l-l 0.
For purposes of this question, the term “gateway”
to an early-entry activity such as the facerlcanceler
activity refers
operation that must be staffed and
ready to receive and process mail as it comes into the stream in order to prepare it for
subsequent
processing,
as described
by witness Bradley at pages !57-58 of USPS-T-
14. To the extent that the non-volume-variability
function as a “gateway”
of a cost component
activity primarily for the subsequent
processing
a particular
mail class, could some or all of the non-volume-variable
considered
inlcremental to that class?
additional information
ADVOIUSPS-Tl
component
is due to its
and dispatch of
costs be
Please explain your answer, and describe any
or factors that would affect your answer.
l-l 1.
To the extent that the non-volume-variability
of a cost
is due to personnel staffing designed to meet delivery standards
high delivery performance
volume-variable
or achieve
for a particular mail class, could some or all of the non-
costs be considered
incremental
answer, and describe any additional information
to that class?
Please explain your
or factors that would affect your
answer.
ADVO/USPS-Tl
I-12.
On page 9 of your testimony you state:
“The incremental costs which the Postal Service incurs in providing a mail service
measures the costs to society of having that particular service provided as pan of
the larger Postal Service enterprise. In many cases, alternativls supply
-
-2arrangements may be possible.
From a social point of view, stand-alone
provision would be desirable whenever the stand alone costs of independent
provision of mail service (or group of mail services) are less than the Postal
Service’s incremental costs of that service (or group of services).”
Please consider a simplifjed example of a mail subclass used by one mailer only.
There is one level of sortation required before delivery of this mail by the USPS and sort
operations
are subject to worksharing.
Assume that USPS sorting costs for this mailer
(subclass) are captured by the cost function C(V), where C(V) definers total avoidable
USPS sorting costs at any volume level (V) if sorting is performed
assume that v’s is the mailer (subclass) volume level processed
is conducted
that use this particular
economies
associated
by the USPS if sorting
sortation operation and there are no scope
with the costs of this operation.)
Please confirm that C(Vs) is the total avoidable cost by the USPS if the mailer were
to perform sort operations.
(b)
Also
by the USPS. (For simplicity, please assume there are no other
subclasses
(a)
by the mailer.
If you cannot, please explain why.
Please confirm that if the mailer’s total worksharing
sortation costs are less than
C(Vs) at ,this volume level, then efficiency requires that the mailer undertake
sorting operations
ADVO/USPS-Tl
l-l 3.
as the least cost provider.
If you cannot, please explain why
Continuing with the example in Interrogator:y
12 above, please
assume that the mailer’s total sort costs are explained by the function C(V))L. where 0 c
li c 1. In other words, at any given volume level mailer sort costs will be (l- X)*100
percent less than the USPS cost.
(a)
Please confirm that at USPS worksharing
evaluate Vs’Dl
- C(Vs)h in determining
discount level, Dl, the mailer will
whether to workshare
please verify that a positive value for this difference
worksharing.
(b)
or not. Furthermore,
is the mailer’s savings from
If you cannot, please explain why.
Please confirm that if Dl = C(Vs)Ns,
then the mailer will always make the correct
choice as required by efficiency, for then Vs’Dl
- C(Vs)L = C(Vs;)*(l- 1) > 0. Mailer
savings from worksharing
sorting operations
(c)
-3and the actual cost difference from mailer and USPS
will be equal and positive.
If you cannot, please explain why.
Please confirm that Dl in this case is set at the average total cost for sorting
operations,
ADVOIUSPS-Tl
or Dl = AC(Vs) = C(Vs)Ns.
‘I -14.
Continuing
If you cannot, please explain why.
with the example in Interrogatorilss
12 and 13
above:
(a)
Please confirm that the total volume variability of USPS sorting costs at the
mailer’s volume level can be calculated as:
VAR
=
MC(Vs)lAC(Vs)
where MC(\/s) is USPS marginal sortation costs at (Vs) and VAf? is volume
variability of USPS sortation cost (C) at Vs.
If you cannot confirm,
please explain
why.
(b)
Please confirm that the efficient USPS discount value, Dl,
Dl
=
AC(Vs)
=
MC(Vs)NAR
can be calculated
as:
If you carinot confirm, please explain fully.
(c)
Please confirm that if the volume variability VAR is less than one, then the efficient
discount value, Dl, would be higher than the sortation marginal cost MC(Vs).
If
you cannot confirm, please explain.
(d)
Please confirm that if Dl is set at the USPS marginal cost, then the mailer will
violate the Yeast cost principle and continue to choose USPS sorting operations
when it could workshare
explain.
at a lower total cost. If you cannot confirm, please